Magazine

Labor Law Time Warp

September 30, 2007

Do America's decades-old overtime laws make sense anymore? Despite the litigation they are generating, there's almost no political momentum to change them. The values that the laws codify—that the workweek should be capped and that excess time should be compensated—are widely embraced.

Yet it's generally accepted that overtime laws don't achieve one of their main New Deal-era goals: increasing employment. The initial idea was that companies would choose to hire extra workers rather than pay existing ones time and a half. But that calculus doesn't hold these days, given the enormous fixed costs of such things as benefits and training for each additional employee.

Some economists, meanwhile, contend that overtime rules fall short on assuring that workers get paid more for time they put in beyond 40 hours each week. When the law requires overtime pay, they argue, the market will adjust regular wages down, so that a $450-a-week job that requires 45 hours still moves back toward $450. Stephen J. Trejo, an economics professor at the University of Texas at Austin, says a study he did shows about half of the extra pay is erased. Of course, workers on the lowest rung of the pay ladder have minimum-wage laws to protect them from such a shift.

Overtime rules raise eyebrows most often when they are invoked on behalf of workers who earn relatively high incomes, such as computer programmers and stockbrokers. Do these individuals really need or deserve the law's protections? Trejo finds it hard to argue they do, noting that highly skilled workers have choices about the jobs they take and are free to move to ones where they work—but possibly earn—less.

This brings to mind an oft-forgotten fact about overtime laws, which is that they were rooted in a time when many envisioned a steady reduction in the hours Americans worked. (John Maynard Keynes predicted a two-hour workweek by 1980.) That vision is long gone. In the intervening years, says Benjamin Kline, a professor of leisure studies at the University of Iowa, a huge change has taken place. The ideal of working fewer hours vanished long ago, partly as a result of economic imperative but also because of a cultural shift toward embracing work, particularly by professionals. "The image I use is that our faith is in our jobs" now, he says. The sense of purpose and identity that we used to find in religion, "we find more and more in our work."